AMD to cut workforce by 15 percent

Blaming the tough market for personal computers, troubled Sunnyvale chipmaker Advanced Micro Devices Thursday said it will trim its workforce by about 15 percent to reduce expenses and announced third-quarter earnings that missed Wall Street's expectations.

The company didn't specify the number of job cuts, which will be mostly done by the end of the year. But the layoffs presumably would affect about 1,665 positions based on the 11,100 employees it said it had in its most recent annual report. The company said it does not yet know how many of the trims will be in the Bay Area, where it has 925 employees.

"We faced a very challenging selling environment," CEO Rory Read told analysts in a conference call. Although the company is trying to get its chips into other new markets, the slowdown in PC sales caught AMD by surprise. "We underestimated the speed of this change in our industry and expected to have several years to transform AMD's business. But we must implement our transformation on a more aggressive timeline."

But the announcement left some analysts skeptical.

"I've got to say I don't like this," Bernstein Research analyst Stacy Rasgon said. "They have to cut 15 percent. I think it's going to be disruptive," especially as AMD attempts to compete in new markets against other chip suppliers.

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The layoffs come on top of 1,400 job cuts the company announced in November. AMD also laid off 2,300 workers in September 2001.

For the quarter, AMD said its sales totaled $1.27 billion, a 25 percent drop from the same period ago. It also reported a loss of $157 million, or 21 cents a share. Analysts surveyed by Thomson Reuters on average had expected a loss of 16 cents a share on sales of $1.28 billion.

The company's shares fell 15 cents, or more than 5 percent, to $2.62 at the market's close and before the layoff announcement. It stayed at that price in after-hours trading.

In recent quarters, AMD's sales have steadily shrunk and it has dipped into the red on several occasions. But its problems have been brewing for years.

Founded in 1969, it soon ran afoul of chipmaker Intel (INTC). They feuded over patents and other matters in the early 1980s, when both companies began supplying IBM's personal computers with brainy x86 microprocessors. The bickering continued and in 2005, AMD filed an antitrust suit against Intel, accusing it of unfairly discouraging computer makers from using AMD's chips.

Similar allegations were leveled against Intel over the next few years by Japan, South Korea, New York state, the U.S. Federal Trade Commission and Europe, with the latter fining the company $1.45 billion. Intel denied wrongdoing and is appealing the European penalty. But in 2009, it agreed to give AMD $1.25 billion to resolve its complaints, and it later settled the suits by the FTC and New York.

After that, AMD executives had hoped to grab a bigger piece of the PC microprocessor business. Instead, AMD, which had owned 23 percent of the market in 2006, saw its share slide to about 19 percent while Intel's share rose from 75 percent to about 80 percent.

Although AMD was often praised for its chip quality, its earnings in recent years disappointed investors and it was criticized for not branching out from the personal computer market. AMD's failure to get its chips into smartphones and tablets reportedly was behind a decision in 2011 to oust CEO Dirk Meyer and replace him later that year with Rory Read, former CEO of PC and tablet maker Lenovo.

After his new company suffered manufacturing glitches and announced a round of layoffs last year, Read had hoped to revive AMD's fortunes by developing more power-efficient, low-cost processors for mobile devices and finding more customers for its graphics chips. He also announced plans to begin complementing its traditional x86 chip design with another design predominately used in smartphones and tablets from British firm ARM.

But AMD's difficulties continued and its stock price has been in a nose dive since April.

Reed said he hopes to sell more of its chips for communications, industrial and gaming uses, boosting the share of revenue it gets from those markets from five percent today to 20 percent a year from now.

But tech analyst Patrick Moorhead said it often takes three years to develop chips for those markets and he said he wished AMD had disclosed more about how it intends to do that.

"It's the lack of details that I think is challenging to really understand what AMD is going to be doing," he said.

Ambrish Srivastava, an analyst with BMO Capital Markets, was similarly unclear how AMD would be able to turn its fortunes around.

"You never give up hope, that's what I tell my kids," he said. But he added, "they're in a tough spot."

Contact Steve Johnson at 408-920-5043. Follow him at Twitter.com/steveatmercnews.